Harrah’s co-owner reports hundreds of millions in losses on investment
Harrah's Entertainment co-owner TPG Capital is sitting on hundreds of millions of dollars in paper losses for its investment in the gaming giant, the private equity firm recently told its investors.
The private equity firm wrote down its investment in Harrah's from $1.4 billion to $759 million, signaling to investors that the company will not see a return on its investment in the near future, according to an article in the Financial Times.
TPG Capital and Harrah's declined to comment on Monday.
The investment value was detailed in a May 28 report sent to investors in TPG Partners V fund.
Melvin Jameson, a finance professor at the University of Nevada, Las Vegas, said the private equity company's write down is similar to a public company's value declining on the stock market.
"Because it's privately held we don't have a price we can look at every day to suggest what Harrah's is worth," Jameson said. "Only at ad hoc intervals does this thing get marked down or marked up."
The news shouldn't have any affect on the gaming company's daily operations beyond cost-saving measures already undertaken, Jameson said.
TPG Partners V is a $14 billion investment fund established in 2006 and supported by private and public pension funds, and college and university endowments.
The fund still has time to turn around its losses from its Harrah's investment.
Kelvin Davis, a senior partner at TPG and a director for Harrah's, told Nevada gaming regulators in late 2007 that TPG traditionally looks at five-year horizons before returning its investments to the public markets.
The fund that backed the Harrah's buyout has a 10-year life span with two one-year extensions for investors.
"We focus on creating long-term value in the companies in which we invest," Davis said on Dec. 5, 2007.
TPG Capital and investment partner Apollo Management bought Harrah's for $30.7 billion in January 2008. That amount includes a $90 per share buyout of Harrah's stock and the assumption of debt. TPG, Apollo, smaller investors and members of Harrah's management contributed $6 billion in cash to fund the buyout.
Harrah's saw its long-term debt swell from $12.4 million prior to the buyout to $23.9 million in the early months of 2008.
The company has been able to refinance and cut its long-term debt to $19.3 billion with many near-term maturities delayed a few years.
The paper loss comes as TPG and Apollo are trading $408 million in bonds for equity representing 5.7 percent of Harrah's. The debt-for-equity swap was announced June 3, the same day hedge fund Paulson & Co. agreed to exchange $710 million of Harrah's bonds for a 9.9 percent stake in Harrah's.
TPG Partners V also recorded large paper losses in energy company TXU, semiconductor manufacturer Freescale and media company Univision.
Contact reporter Arnold M. Knightly at
aknightly@reviewjournal.com or 702-477-3893.
